October Expected Inflation Rate at 3.4%... Rebounds After 8 Months Due to Middle East Risk (Comprehensive)

Bank of Korea Announces Consumer Sentiment Survey Results
Interest Rate Expectation Index Surges 10 Points
Housing Price Expectation Index Falls for the First Time in 11 Months

As Middle East risks emerge and concerns over high inflation grow, the expected inflation rate, which reflects consumers' inflation outlook, rebounded for the first time in eight months. This is due to the increased consumer-perceived inflation caused by rising international oil prices amid the war between Israel and the Palestinian armed group Hamas, as well as the full-scale increase in public utility charges.

According to the "October Consumer Sentiment Survey Results" released by the Bank of Korea on the 25th, the expected inflation rate for the next year rose by 0.1 percentage points from the previous month to 3.4%. This is the first increase in the expected inflation rate in eight months since February. The expected inflation rate was 3.9% in January this year, rebounded by 0.1 percentage points in February, recorded 3.5% in May and June, maintained 3.3% from July to September, and turned upward again to 3.4% this month.

Hwang Hee-jin, head of the Bank of Korea's Statistics and Survey Team, said, "The war between Israel and Hamas has increased uncertainty over rising international oil prices. In October, there were announcements of public utility fee hikes such as subway fares in the metropolitan area and water and sewage charges, and prices of agricultural products also rose, leading to an increase in responses that prices will continue to rise, which appears to have driven up expected inflation."

The stability of expected inflation is directly linked to the effectiveness of monetary policy and the central bank's credibility, so the rebound in the expected inflation rate could be a burden for the Bank of Korea. On the 23rd, Bank of Korea Governor Lee Chang-yong expressed concern at the National Assembly's Planning and Finance Committee audit, stating, "If expected inflation rises, it may become unavoidable to raise the base interest rate."

Consumer Sentiment Declines for Three Consecutive Months Amid High Inflation and Weak Domestic Demand

As weak domestic demand continues due to high inflation, the consumer sentiment index fell for the third consecutive month in October. Amid expectations that the tightening stance will continue due to prolonged high interest rates in the U.S., the consumer sentiment index dropped 1.6 points from the previous month to 98.1, remaining below the baseline of 100 for the second consecutive month. The consumer sentiment index exceeded 100 for the first time in 13 months in June and stayed above 100 for three months until August, but fell below 100 again in September, turning pessimistic, and continued to decline this month.

The CCSI is an indicator calculated using six of the 15 indices that make up the Consumer Sentiment Index (CSI): current living conditions, outlook on living conditions, household income outlook, consumption expenditure outlook, current economic conditions, and future economic outlook. A value above 100 indicates optimistic consumer sentiment compared to the long-term average (2003?2022), while below 100 indicates pessimism.

Team leader Hwang explained, "Concerns over price instability due to geopolitical risks have increased, and the consumer sentiment index declined due to weak domestic demand caused by high inflation and the prolonged tightening stance."

The housing price outlook index, which had been high until last month, fell 2 points from 110 to 108, marking a decline for the first time in 11 months. Although nationwide housing sale prices continue to rise, the index dropped 2 points due to the impact of rising loan interest rates caused by increased market interest rates. A housing price outlook index above 100 means more consumers expect housing prices to rise than to fall, and this index had shown a continuous upward trend this year.

Team leader Hwang added, "Although nationwide housing sale prices are on the rise, some consumers seem to think there are limits to housing price increases due to recent rises in market interest rates such as mortgage loans. The increased economic uncertainty caused by the Israel-Hamas war is also a reason."

The interest rate level outlook index (128) rose by 10 points due to the prolonged high inflation and high interest rate environment and sustained high market interest rates. The index itself was the highest since January (132), and the increase was the largest in two years and seven months since March 2021.

The price level outlook index (151) rose by 4 points as consumer-perceived inflation remained high due to a reduction in the decline of petroleum product prices caused by rising international oil prices, rising agricultural product prices, and public utility fee hikes.

This content was produced with the assistance of AI translation services.